AT&T and the Curse of the iPhone

If the title of this post sounds like an Indiana Jones sequel, there’s a reason. As everybody learned at the climax of “Raiders of the Lost Ark,” treasures come with a catch. Such is the case with AT&T and its exclusive offering, the iPhone. Landing the king of the smart phones and co-opting the luster of Apple is creating a mounting PR headache for the brand that used to be the largest company in the world and America’s unchallenged provider of telephone service.

A vague comment by company president Ralph De la Vega turning into rumors of a tiered pricing program to make iPhone power users pay extra for their bandwidth consumption.

A lawsuit against Verizon for its commercials playing up AT&Ts patchy 3G coverage with a colored American map that invokes Bush v. Gore 2000.

AT&T is now officially denying the launch of a tiered pricing plan but is planning “incentives” for lighter iPhone use (reminiscent of incentives to pay farmers for not growing crops). As for other denials, a judge denied AT&Ts attempts to stop Verizon’s “map” ads, precipitating AT&T’s abandonment of its suit. Verizon may be upset; the suit amplified their ads and cast AT&T as litigious crybabies…with crummy coverage. (see my previous post about the attack ad/lawsuit cycle, “More Lawsuits than Brand X!”)

AT&T is in the midst of a PR debacle similar to the Jet Blue collapse that left travellers trapped inside terminals and grounded planes during winter storms. Perhaps AT&T doesn’t need the self-flagellation of Domino’s “Pizza Turnaround” campaign, but they do need a new level of clarity and candor. And they need to hurry. In the most dangerous and persistent rumor of all, Apple will share the iPhone with Verizon in 2010.

Jason,
I’m glad you mentioned the iPhone-to-Verizon rumors. I’m of the belief that no network could have withstood the built-in rabid user-base Apple brings to the table. AT&T failed to take into account the number of people who would gladly drop $175 on an early termination fee with a competing carrier to have another Apple branded device (to go along with their iMac, MacBook, Apple TV, and iPod). With AT&T claiming a 5,000% increase in data use due to iPhones, I can’t see Verizon, Sprint or T-Mobile weathering that storm.

AT&T’s reputation could actually be helped by Verizon’s iPhone, as all that data traffic would be offloaded to a competitor’s network, freeing up resources of their own. The question will be, can Verizon anticipate the demand for the iPhone on their network and avoid AT&T’s fate?

No question that AT&T took the plunge without realizing all the consequences–but then who would have? Any other carrier that gets the iPhone (I don’t think it will stay exclusive forever) will experience its version of AT&T woes. One more factor at that point–price wars, as carriers will have to squeeze margins while adding features and improving service to woo iPhone users away from each other.